Report Sample on Accounting for Corporate Accountability

Introduction

The paper explores amazon.com Inc. to examine measurement bases for its assets including property and equipment and inventories. The discussion will include why Amazon chooses the specific measurement basis and explore other measurement bases that it can also use to measure its assets. Besides, the discussion will include a review and commenting on Amazon’s accounting policy for the revenue from contracts with customers. It will discuss whether the accounting policies chosen are suitable for the business.

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Amazon Inc

Amazon.com Inc. is a company that was incorporated in the year 1994 in Washington state and was later reincorporated in 1996 in Delaware state (Amazon Annual Report, 2019, 3). The principal corporate offices of the firm are based in Seattle in the state of Washington. In May 1997, Amazon.com Inc. completed their initial public offering. The company has its common stock listed on the Nasdaq, which is an international select market. It appears in the stock market with the symbol AMZN.

Amazon.com Inc. usually seeks to be the leading customer-centric forum on Earth. the business ensures that it serves their main customer sets in its segments, where the customers comprise of sellers, consumers, developers, content creators and enterprises (Amazon Annual Report, 2019, 3). Amazon.com Inc. serves it’s the consumers via their physical and online stores and meet any orders placed with them. It has also programs that enable musicians, authors skill and app developers, filmmakers, alongside other stakeholders to publish and sell their content. The company serves enterprises and developers cutting across all sizes via its AWS segment. The segment provides a vast set of international compute, database, storage, alongside other service provisions. Besides, Amazon.com Inc. is involved in manufacturing and selling of electronic devices. Additionally, the company offers services, including advertising to vendors, sellers, authors and publishers, via programs that include a display, sponsored ads, and video advertising (Amazon Annual Report, 2019, 3). Amazon.com Inc. has organized its operations to include three segments namely International, North America and AWS.

Measurement Bases

Amazon.com Inc. follows accounting policies in measuring its assets in the statement of financial position. In this discussion, the two assets that will be addressed in property and equipment, and inventories of the balance sheet. The discussion will include the measurement bases that Amazon.com Inc. uses to measure each item.

Inventories

Inventories are identified to comprise of the products available for the company to sale. Amazon.com Inc. mainly uses the First-in, first-out (FIFO) method to account for its inventories (Amazon Annual Report, 2019, 46). FIFO refers to an accounting technique where assists acquired or purchased first are usually disposed of first in a company. Under the FIFO method, it is assumed that the amount of inventory left is composed of all items that were last to be purchased by the business (Yang et al., 2019) Cost is usually assigned to the inventory items during their preparation to be sold. The process is likely to happen via the purchase of an inventory or through production costs. It may also occur through utilization of labor, and purchase of materials. Costs assigned are depended on the order in which the particular inventory was used.

The FIFO approach is found to observe the logic that for a company to eliminate obsolescence, it would ensure the oldest items are sold first and keep the newest ones in inventory (Sommers & Easton, 2018). Even though the real inventory valuation approach applied does not have to follow the real inventory flow through the firm, it is important for the business to be in a position to support why their selected inventory valuation method is appropriate.

FIFO method has special considerations. Normal economic circumstances include inflationary markets and rising prices. In such a situation, if FIFO is used to assign the oldest cost to items such as cost of sales, the particular oldest costs are expected to theoretically be priced even lower than the majority of the existing inventory purchases during the prevailing inflated prices (Hazar, 2020, 2419). Alternatively, Amazon can use the LIFO (last-in, first-out) method to measure its inventories.

Valuation of Inventories

The lower of cost is also referred to as the market rule in accounting. The concept involves where a business ought to record and the cost of inventories at any identified lower cost (Lind & Nordlund, 2019). It may either the original price of the inventories or the current market price. Amazon.com Inc. uses such an approach when the inventories are perceived to have deteriorated. They may also have become obsolete or in the event prices in the market have fallen. Amazon.com is likely to apply the rule when its inventories have been held in the business for a long period. they do so because as time passes, it is likely to bring about the unfavorable conditions. Therefore, Amazon.com observes the Generally Accepted Accounting Principles accounting model which describe the lower of the cost approach.

The current market price is explained as the existing replacement inventory cost, given that the market price is less than the net realizable value. When applying the lower of cost, Amazon.com has to ensure it observes certain factors. The company needs to consider analysis by category since the lower of cost is usually applied to a particular inventory item, although sit can also be applied to all other inventory groups (Bonham, 2019, 27).

When valuing inventories using lower of cost, Amazon.com Inc. is expected to make key judgments, depending on the prevailing and available information. The information should include the probable disposition method include via sales to individual consumers, liquidations, or returns to product vendors. Sit also involves the anticipated recoverable values of every category of disposition.

Net Realizable Value

The net realizable value includes the amount of cash that Amazon.com Inc. anticipates to receive (Harris & Ananthanarayanan, 2019, 79). The concept may sometimes be referred to as cash realizable value. NRV is in most cases associated with inventory, and thus Amazon uses it to value its expected cash amount from inventories (Amazon Annual Report, 2019, 46). The assets are at first recorded at cost, but it is established that occasions exist when the firm will be compelled to collect less than the initial cost. In such a situation, the business ought to report lower of cost, or the net realizable value. in the case of inventories, NRV is described as the required selling price in an ordinary course of business less the costs associated with disposal, completion and transportation.

Amazon.com Inc. typically offers Fulfillment by the Amazon services in connection with particular programs from their sellers (Amazon Annual Report, 2019, 46). Their party sellers are found to keep their inventory ownership, without regard to whether the fulfilment is given by Amazon.com Inc. or the third-party sellers. As a result, the company does not include such products in their inventories.

Additionally, Amazon purchases components of electronic devices from multiple suppliers and utilize many contract manufacturers to offer the manufacturing services for the firm’s products. On a typical business course, for them to manage manufacturing lead times and assist in ensuring the presence of enough supply, Amzon.com enter into agreements with suppliers and contract manufacturers for particular electronic device components. It is established that a portion of the firm’s reported purchase commitments to arise from the above agreements and they include robust and non-cancellable commitments. The commitments are typically in terms of the projected customer demand. When the business reduces the commitments, it is likely to incur extra costs. Besides, Amazon have strong and non-cancellable commitments for given products provided in its Whole Foods Market stores.

Property and Equipment

Amazon.com Inc. states the property and equipment at cost less the accumulated depreciation and amortization (Amazon Annual Report, 2019, 46). Property, plant and equipment (PP&E) are used to describe the value of all land, buildings, furniture as well as other physical capital that a company is said to have purchased to enable it to run the business operations (Messer, 2020). The concept of the net is used to refer to the net of all accumulated depreciation expenses. Every year, a business is required to depreciate the PP&E value to ensure it takes into account the fact that wearing out occurs at it should be fix or a replacement made. When a business buys more and more PP&E, it is observed that the net PP&E increases. Further, the passage of time means that the value of the PP&E decreases based on the depreciation expense.

The incentives that Amazon.com Inc. receives from the vendors of property and equipment are typically recorded as a reduction in their costs. The company identifies the property as including buildings and land that it owns, alongside the property that Amazon has acquired based on the build-to-suit lease agreements. These may include networking and servers equipment, heavy equipment and any other fulfilment equipment.

Amazon.com Inc. records depreciation and amortization using the straight-line basis and over the estimated assets’ useful lives (Del Giudice et al., 2016). In general, the company considers the lesser of 40 years or it may account for the remaining life of the, particularly underlying building (Amazon Annual Report, 2019, 46). For the case of Amazon, it considers three years if it’s the servers while networking equipment will be accounted for their five years. In heavy equipment, Amazon accounts for 10 years while any other fulfilment equipment will be accounted for years between three to seven. The business classifies depreciation and amortization expense within the corresponding operating expense groups on its consolidated statements of operations (Messer, 2020).

Conclusion

Thus, depreciation includes an accounting technique that is used in the allocation of costs of a given physical or tangible asset over its useful life. in this case, the useful life of an asset is described as an accounting estimate of several years that are considered as likely to remain in service for the primary aim of generating cost-effective revenue.